STURM RUGER & CO INC (RGR)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales accounted for approximately 6% of total sales for the six month period ended June 27, 2026 and approximately 5% of total sales for the six month period ended June 28, 2025. The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

The Company also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less than 1% of sales are from the castings segment.

Orders for many models of firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year. This is due in part to the timing of the distributor show season, which occurs during the first quarter.

Results of Operations

During the six months ended June 27, 2026, the Company executed on its Ruger 2030 plan – strengthening operational responsiveness, enhancing the product portfolio and positioning the Company for sustainable long-term growth. Activity in the quarter included:

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As announced on May 4, 2026, Ruger and Beretta entered into an Agreement (the “Beretta Agreement”), which reflects a shared commitment to long-term value creation, constructive engagement, and stability for Ruger’s shareholders, employees, customers and industry partners. Throughout that process, the Company took actions to protect the interests of all shareholders and to maintain focus on executing its long-term strategy. These efforts resulted in professional fees and advisory costs totaling $1.2 million during the quarter and $4.4 million for the six month period ended June 27, 2026. These costs are largely non-recurring in nature and do not reflect the underlying performance of the core business. With the Beretta Agreement now in place, the Company expects these costs to be limited in duration, though some additional expenses may be incurred in the near term.

Additionally, in February 2026, the Company executed a reduction-in-force as part of broader efforts to structurally align the organization to strategic priorities and the future operating model. These actions are consistent with the changes outlined in the 2026 Plan and, more broadly, the Ruger 2030 framework. The moves improve efficiency, enhance accountability and position the Company for long-term profitable growth. The associated severance and related costs of $0.7 million during the quarter and $3.2 million for the six month period ended June 27, 2026 and are not indicative of ongoing operations.

As a result of the factors listed above, the results of operations for the six month period ending June 27, 2026 were negatively impacted, on a non-GAAP basis, by $0.35 per share (see the Non-GAAP Financial Performance Measures below.) The impact was as follows:

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 11% in the first half of 2026 compared to the prior year period. For the same period, National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) increased 3%. Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing six quarters follow:

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The adjusted NICS data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including checks used for concealed carry (“CCW”) permit application checks, as well as checks on active CCW permit databases. The adjusted NICS checks represent less than half of the total NICS checks.

Adjusted NICS data can be impacted by changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Orders Received and Ending Backlog

The Company uses the estimated unit sell-through of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels. The Company generally does not use the orders received or ending backlog for planning production levels.

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing six quarters are as follows (dollars in millions, except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.)

Production

The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company to plan production levels. The Company’s overall production in the second quarter of 2026 increased 22% from the first quarter of 2026.

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Summary Unit Data

Firearms unit data for the trailing six quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

Inventories

During the first half of 2026, the Company’s finished goods inventory decreased by 16,900 units and distributor inventories of the Company’s products increased by 12,600 units.

Inventory unit data for the trailing six quarters follows:

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ITEM
7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

Sturm, Ruger & Company, Inc. (the “Company”)
is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms.
Export sales represent approximately 5% of total sales. The Company’s design and manufacturing operations are located in the United
States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale
distributors, principally to the commercial sporting market.

The Company also manufactures investment castings
made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated,
third-party customers. Less than 1% of sales are from the castings segment.

Results
of Operations - 2025

Product Demand

The estimated sell-through of the Company’s
products from the independent distributors to retailers in 2025 increased 5% from 2024. In 2025, adjusted NICS decreased 4% from 2024.
The increase in the sell-through of the Company’s products despite the decrease in adjusted NICS background checks may be attributable
to new product introductions, like the Ruger American Rifle Generation II bolt-action rifles, the Marlin lever-action rifles, Glenfield
and Harrier rifles, and the RXM pistol, which helped offset aggressive promotions, discounts, rebates, and the extension of payment terms
offered by the Company’s competitors.

Estimated sell-through from distributors to retailers and total adjusted
NICS background checks:

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The adjusted NICS data presented above
was derived by the NSSF by subtracting NICS checks that are not directly related to the sale of a firearm, including checks used for concealed
carry (“CCW”) permit application checks as well as checks on active CCW permit databases.

Adjusted NICS data can be impacted by
changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Orders Received and Ending
Backlog

The Company uses the estimated unit sell-through
of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the
Company, as the key metrics for planning production levels.

The units ordered, value of orders received and ending backlog, net
of Federal Excise Tax, for the trailing three years are as follows (dollars in millions, except average sales price):

Production

The Company reviews the estimated sell-through
from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company, to plan
production levels and manage inventories. These reviews resulted in an increase in total unit production of 6% in 2025 compared to 2024.

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Annual
Summary Unit Data

Firearms unit data for orders, production, and
shipments follows:

Inventories

The Company’s finished goods inventory decreased
by 47,700 units during 2025, while distributor inventories of the Company’s
products decreased by 33,500 units during the same period.

Inventory data follows:

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Year ended December 31, 2025, as compared to year ended December
31, 2024:

Net Sales,
Cost of Products Sold, and Gross Profit

Net
sales, cost of products sold, and gross profit data for the year ended December 31, (dollars in millions):

Firearms sales increased 2%, driven by a 7% increase
in unit shipments, partially offset by the $5.7 million reduction related to the close out of 67,000 units of discontinued models in the
second quarter of 2025. New products represented $169.5 million or 33% of firearms sales in 2025, an increase from $159.3 million or 32%
of firearms sales in 2024. New product sales include only major new products that were introduced in the past two years. In 2025, new
products included the RXM pistol, American Centerfire Rifle Generation II, Marlin 1894 lever-action rifles, Glenfield rifles, Harrier
rifles, and the Ruger Red Label Shotgun, as well as the Super Wrangler revolver, which was only included for a portion of the year.

The decreased gross profit for the year ended
December 31, 2025 is attributable to inventory rationalization write-offs and the aforementioned sales reductions taken in the second
quarter of 2025, $4.3 million of operating costs at the new Hebron facility that was acquired in July, increased

costs
associated with material and technology, a product mix shift toward products with relatively lower margins that remain in relatively stronger
demand and increased sales promotional expenses, partially off-set by favorable deleveraging of fixed costs resulting from increased production.

The decrease in gross margin for the year ended
December 31, 2025 is attributable to the aforementioned factors.

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Selling,
General and Administrative

Selling and general and administrative expenses data for the year ended
December 31, (dollars in millions):

Selling expenses for the year ended December 31,
2025 were substantially unchanged from 2024, as increases in promotional and marketing initiatives was largely offset by decreases in
spending on industry shows, personnel costs, and shipping expenses.

The increase in general and administrative expenses
for the year ended December 31, 2025 was primarily attributable to expenses incurred due to the Company’s leadership transition
and organizational realignment, as well as increased information technologies related expenses and professional fees associated with the
purchase of the Anderson Manufacturing assets and the implementation of the Rights Plan.

Operating (Loss) Income

Operating loss was $12.3 million or 2.3% of sales
in 2025. This is a decrease of $43.9 million from 2024 operating income of $31.6 million or 5.9% of sales.

Other Operating Income (Expense),
Net

Other income data for the year ended December 31, (dollars
in millions):

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The decrease in other income for the year ended
December 31, 2025 was primarily the result of decreases in interest income due to decreased interest rates earned on short-term investments
and other income, partially offset by increased royalty income.

Income
Taxes and Net Income

The
effective income tax rate was 38.7% in 2025 and 19.1% in 2024. The Company's 2025 and 2024 effective tax rates differ from the
statutory federal tax rate due principally to research and development tax credits, state income taxes, and the nondeductibility of certain
executive compensation.

As a result of the foregoing factors, consolidated
net loss was $4.4 million in 2025. This represents a decrease of $35.0 million from 2024 consolidated net income of $30.6 million.

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Non-GAAP Financial Measure

In an effort to provide investors with additional
information regarding its results, the Company refers to various United States generally accepted accounting principles (“GAAP”)
financial measures and two non-GAAP financial measures, EBITDA and EBITDA margin, which management believes provides useful information
to investors. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. In addition,
the Company believes that the non-GAAP financial measure

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